When Congress Busted Milton Friedman (and Libertarianism Was Created By Big Business Lobbyists)

Last Friday, November 9, saw the big “Milton Friedman Centennial” celebration at the University of Chicago’s Becker Friedman Institute for Research in Economics. It was a big day for fans of one of the Founding Fathers of neoliberal/libertarian free-market ideology, and those fans are legion on both sides of the narrow Establishment divide —as Obama’s economy czar Larry Summers wrote in 2006, “Any honest Democrat will admit that we are all Friedmanites now.”

One episode in Milton Friedman’s career not celebrated (or even acknowledged) at last week’s centennial took place in 1946, the same year Friedman began peddling his pro-business “free market economics” ideology.

According to Congressional hearings on illegal lobbying activities '46 was the year that Milton Friedman and his U Chicago cohort George Stigler arranged an under-the-table deal with a Washington lobbying executive to pump out covert propaganda for the national real estate lobby in exchange for a hefty payout, the terms of which were never meant to be released to the public.

The arrangement between Friedman and Stigler with the Washington real estate lobbyist was finally revealed during he Buchanan Committee hearings on illegal lobbying activities in 1950. But then it was almost entirely forgotten, including apparently by those celebrating the “Milton Friedman Centennial” last week in Chicago.

I only came across the revelations about Friedman’s sordid beginnings in the footnotes of an old book on the history of lobbying by former Newsweek book editor Karl Schriftgiesser, published in 1951, shortly after the Buchanan Committee hearings ended. The actual details of Milton Friedman’s PR deal are sordid and familiar, with tentacles reaching into our ideologically rotted-out era.

It starts just after the end of World War Two, when America’s industrial and financial giants, fattened up from war profits, established a new lobbying front group called the Foundation for Economic Education (FEE) that focused on promoting a new pro-business ideology—which it called “libertarianism”— to supplement other business lobbying groups which focused on specific policies and legislation.

The FEE is generally regarded as “the first libertarian think-tank” as Reason’s Brian Doherty calls it in his book “Radicals For Capitalism: A Freewheeling History of the Modern Libertarian Movement” (2007). As the Buchanan Committee discovered, the Foundation for Economic Education was the best-funded conservative lobbying outfit ever known up to that time, sponsored by a Who’s Who of US industry in 1946.

A partial list of FEE’s original donors in its first four years includes: The Big Three auto makers GM, Chrysler and Ford; top oil majors including Gulf Oil, Standard Oil, and Sun Oil; major steel producers US Steel, National Steel, Republic Steel; major retailers including Montgomery Ward, Marshall Field and Sears; chemicals majors Monsanto and DuPont; and other Fortune 500 corporations including General Electric, Merrill Lynch, Eli Lilly, BF Goodrich, ConEd, and more.

The FEE was set up by a longtime US Chamber of Commerce executive named Leonard Read, together with Donaldson Brown, a director in the National Association of Manufacturers lobby group and board member at DuPont and General Motors.

That is how libertarianism started: As an arm of big business lobbying.

Before bringing back Milton Friedman into the picture, this needs to be repeated again: “Libertarianism” was a project of the corporate lobby world, launched as a big business “ideology” in 1946 by The US Chamber of Commerce and the National Association of Manufacturers. The FEE’s board included the future founder of the John Birch Society, Robert Welch; the most powerful figure in the Mormon church at that time, J Reuben Clark, a frothing racist and anti-Semite after whom BYU named its law school; and United Fruit director Herb Cornuelle.

The purpose of the FEE — and libertarianism, as it was originally created — was to supplement big business lobbying with a pseudo-intellectual, pseudo-economics rationale to back up its policy and legislative attacks on labor and government regulations.

This background is important in the Milton Friedman story because Friedman is a founder of libertarianism, and because the corrupt lobbying deal he was busted playing a part in was arranged through the Foundation for Economic Education.

False, whitewashed history is as much a part of the Milton Friedman mythology as it is the libertarian movement’s own airbrushed history about its origins; the 1950 Buchanan Committee hearings expose both as creations of big business lobby groups whose purpose is to deceive and defraud the public and legislators in order to advance the cause of corporate America.

The story starts like this: In 1946, Herbert Nelson was the chief lobbyist and executive vice president for the National Association of Real Estate Boards, and one of the highest paid lobbyists in the nation. Mr. Nelson’s real estate constituency was unhappy with rent control laws that Truman kept in effect after the war ended. Nelson and his real estate lobby led what investigators discovered was the most formidable and best-funded opposition to President Truman in the post-war years, amassing some $5,000,000 for their lobby efforts—that’s $5mln in 1946 dollars, or roughly $60 million in 2012 dollars.

So Herbert Nelson contracted out the PR services of the Foundation for Economic Education to concoct propaganda designed to shore up the National Real Estate lobby’s legislative drive — and the propagandists who took on the job were Milton Friedman and his U Chicago cohort, George Stigler.

To understand the sort of person Herbert Nelson was, here is a letter he wrote in 1949 that Congressional investigators discovered and recorded:

"I do not believe in democracy. I think it stinks. I don’t think anybody except direct taxpayers should be allowed to vote. I don’t believe women should be allowed to vote at all. Ever since they started, our public affairs have been in a worse mess than ever."

So in 1946, this same Herbert Nelson turned to the Foundation for Economic Education to manufacture some propaganda to help the National Association of Real Estate Boards fight rent control laws. Nelson knew that the founder of the first libertarian think-tank agreed with him on many key points. Such as their contempt and disdain for the American public.

Leonard Read, the legendary (among libertarians) founder/head of the FEE, argued that the public should not be allowed to know which corporations donated to his libertarian front-group because, he argued, the public could not be trusted to make “sound judgments” with disclosed information:

"The public reporting would present a single fact—the amount of a contributor’s donation—to casual readers, persons having only a cursory interest in the matter at issue, persons who would not and perhaps could not possess all the facts.
These folks of the so-called public thus receive only oversimplifications or half-truths from which only erroneous conclusions are almost certain to be drawn. If there is a public interest in the rightness or wrongness of corporate or personal donations to charitable, religious or education institutions, and I am not at all ready to concede that there is, then that interest should be guarded by some such agency as the Bureau of Internal Revenue, an agency that is in a position to obtain all the facts, not by Mr. John Public who lacks relevant information for the forming of sound judgments...Public reporting of a half-truth is indeed a significant provocation."

So in May 1946, Herbert Nelson of the Real Estate lobby, looking for backup in his drive to abolish federal rent control laws, contacted libertarian founder Leonard Read of the FEE with an order for a PR pamphlet “with some such title as ‘The Case against Federal Real Estate Control’,” according to Schriftgiesser’s book The Lobbyists.

What happened next, I’ll quote from Schriftgiesser:

"They were now busily co-operating on the new project which the foundation had engaged Milton Friedman and George J. Stigler to write. It was to be called Roofs and Ceilings and it was to be an outright attack on rent controls.
When Nelson received a copy of the manuscript he wrote Read to say, “The pamphlet...is a dandy. It is just what I wanted."

The National Association of Real Estate Boards was so pleased with Milton Friedman’s made-to-order propaganda that they ordered up 500,000 pamphlets from the FEE, and distributed them throughout the real estate lobby’s vast local network of real estate brokers and agents.

In libertarianism’s own airbrushed history about itself, the Foundation for Economic Education was a brave, quixotic bastion of libertarian “true believers” doomed to defeat at the all-powerful hands of the liberal Keynsian Leviathan. Here is how Brian Doherty describes the FEE and its chief lobbyist Leonard Read:

"[Read] would never explicitly scrape for funds... He never directly asked anyone to give anything, he proudly insisted, and while FEE would sell literature to all comers, it was also free to anyone who asked. His attitude toward money was Zen, sometimes hilariously so. When asked how FEE was doing financially, his favorite reply was, “Just perfectly.”... Read wanted no endowments and frowned on any donation meant to be held in reserve for some future need."

And here is what the committee’s own findings reported—findings lost in history:

"It is difficult to avoid the conclusion that the Foundation for Economic Education exerts, or at least expects to exert, a considerable influence on national legislative policy....It is equally difficult to imagine that the nation’s largest corporations would subsidize the entire venture if they did not anticipate that it would pay solid, long-range legislative dividends."

Or in the words of Rep. Carl Albert (D-OK): "Every bit of this literature is along propaganda lines."

The manufactured history about libertarian’s origins, or its purpose, parallels the manufactured myths about one of big business’s key propaganda tools, Milton Friedman. As the author of The Lobbyists, not knowing who Milton Friedman was at the time, wrote of Friedman’s collaborative effort with Stigler:

“Certainly [the FEE’s] booklet, Roofs or Ceilings, was definitely propaganda and sought to influence legislation....This booklet was printed in bulk by the foundation and half a million copies were sold at cost to the National Association of Real Estate Boards, which had them widely distributed throughout the country by its far-flung network of local member boards.”

Like everything involving modern economics and libertarianism, it was a kind of giant meta-sham, shams celebrating a sham. Even the Nobel Prizes in economics awarded to people like Milton Friedman, George Stigler, or Friedman’s contemporary fans Heckman and Lucas, are fake Nobel Prizes — in fact, there is no such thing as a Nobel Prize in economics; its real name is the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” and it was first launched in 1969 by the Swedish Central Bank and has since been denounced by Alfred Nobel’s heirs.

And yet — in the words of Larry Summers, "Any honest Democrat will admit we are all Friedmanites now." Of course, there are no honest Democrats. And there are no honest economists. And these are the people who are framing our politics, the people who have told Greece and Spain they have no choice, and the people who today are making sure that the number one item on Obama’s and Congress’s agenda is cutting Social Security and cutting Medicare and cutting "entitlements" — and the only thing that divides the elites in charge of this mess is “how much of these moochers’ lifelines can we cut?”